Auditing: Systematic Process and Risk Assessment, Slides of Auditing

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AUDITING

_1. SYSTEMATIC PROCESS OF F/S AUDIT

2. AUDIT PLANNING
3. AUDIT EVIDENCE
4. AUDIT DOCUMENTATION_

SYSTEMATIC PROCESS OF FS

AUDIT

1. Pre-engagement and Audit Planning (PSA 300)
2. Gathering and evaluating evidence (PSA 500)
3. Preparing and issuing report (PSA _00)

Accepting the Engagement  (^) Competition among firms  (^) Change in auditors  (^) Mergers  (^) Expanded services  (^) Dissatisfaction  (^) Audit fee

 Also engagement continuance

 Does the auditor have the obligation to

perform an audit when requested?

Evaluating the Integrity of Management  (^) Trust in management  (^) Management lacking in integrity?  (^) Evaluation of Management Integrity a. Make inquiries of third parties

• (^) Who to ask?

SYSTEMATIC PROCESS OF F/S AUDIT  Pre-engagement and Audit Planning  Audit Planning - developing a general strategy & a detailed approach for the expected nature, timing & extent of the audit. The auditor plans to perform the audit in an efficient & timely manner.

Summary of the Purposes

of Audit Planning

A major purpose is to gain : (1) an understanding of the client’s business and industry. (2) an overall audit strategy

Key Parts of Planning Understand the client’s business and industry Understand client’s industry and external environment Understand client’s management, operations, strategies, and performance system Understand client’s accounting and reporting systems Understand client’s internal control

Industry and External

Environment

What are some reasons for obtaining an understanding of the client’s industry and external environment?

1. Risks associated with specific industries
2. Inherent risks common to all clients in certain industries
3. Unique accounting requirements

Management and Governance Management establishes the strategies and processes followed by the client’s business. Governance includes the client’s organizational structure, as well as the activities of the board of directors and the audit committee. Corporate charter and bylaws Code of ethics Meeting minutes

Planning an Audit and Designing

an Audit Approach

Assessment of Materiality Understand internal control and assess control risk. Acceptable audit risks and inherent risk Develop overall audit plan and audit program.

 (^) It requires the auditor to consider  (^) Circumstances of the company  (^) The users of the F/S  (^) The auditor makes a preliminary judgment about materiality levels in planning the audit  (^) May ultimately differ from materiality levels used in evaluating audit findings

 (^) Materiality involves both qualitative and quantitative considerations  (^) In assessing the quantitative amount it is

necessary to relate the nature and peso

amount to the F/S  (^) In planning, the auditor is usually concerned with just the quantitative  (^) Qualitative?

Qualitative Factors Should answer the following questions

1. Nature of the item?
2. Unusual or extraordinary?
3. Contingency?
4. Based on existing facts?
5. Relevant to F/S taken as a whole?
6. Relevant to the total of the accounts of which it forms a part?
7. Relevant to other related items?

On the basis of the initial information gathered by the auditor, he then assesses the AUDIT RISK Control risk Detection Risk Inherent risk